In the past few years, European regulators have been grappling with the problem of constraining the excess profits they fear that mobile networks can earn from charges for connecting calls levied on fixed-line operators and other mobile companies.

The vivid image of the “waterbed” illustrates the argument that pushing down one set of charges would only result in a price bulge elsewhere. To discover why and when this may be the case however requires rigorous modelling of the relationship between pricing behaviour and the intensity of competition in these markets.